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Loan features
Loan Features Checklist

Taking out a loan is a huge responsibility, especially if you are doing it for the first time. There are so many confusing terms and conditions with loans that it can be a difficult experience.  In order to be confident that you are getting the best loan deal, here are just a few key loan features you should consider.

Regardless of which loan you finally choose, make sure you research carefully, make detailed comparisons, and always read the small print before signing an agreement.  Be aware of these loan features to avoid the more common mistakes made by borrowers:

1. Compare interest rates

Traditionally, people who want to borrow money automatically go to their bank. Nowadays, the loans market is so competitive; it is certainly worth shopping around for the best quotes. Online loan providers often have excellent deals on offer.

It is worth choosing a loan with a fixed interest rate as a loan feature as this will give you the stability of knowing exactly how much your monthly repayments will be. This will protect you from lenders who may take advantage of their ability to increase their rates whenever they want.

2. APRS vs. TARS

When you make your comparisons of loan features, begin by comparing the Annual Percentage Rates or APRs to see which loans are the cheapest. However, be aware that APRs can often be manipulated by lenders. A more accurate comparison to make is to weigh the APR against the Total Amount Repayable or TAR. These will indicate more precisely how much you will actually have to repay overall.

Choose the loan features with the lowest Total Amount Repayable instead of the loan with the cheapest APR as the former will invariably be the best deal.

3. The length of your repayment periods

It is a simple fact that the longer you take to pay off any loan, the more money you will end up paying on the whole.  Many borrowers are attracted to loans with a longer repayment term loan feature. Although you will start off by paying a lesser amount each month, you will end up paying far more in the long run, as you will ultimately be paying out a significant amount in interest payments. 

When looking for loan features, if possible, always go for the shortest period possible, but at the same time, make sure that you can confidently afford to make the monthly repayments.

4. Secured loans vs. unsecured loans

It is almost always safer to choose an unsecured loan over a secured loan. When you take out a secured loan, you are essentially borrowing against a valued collateral, most likely your home. Unless you can be 100% certain that you will always be able to make the loan repayments, you could end up putting your home at risk and eventually losing your home.

It is a sad fact that many borrowers do not take this loan feature consideration seriously enough. Many borrowers have found themselves in unexpected financial difficulties when they are suddenly faced with unemployment, redundancy, illness, or an accident, which leaves them unable to cover their loan repayments.

Although unsecured loans carry slightly higher interest rates, they are not linked to any collateral and are therefore safer. You need to weigh up the loan features of each type of loan and make a decision based on your personal circumstances.

5. Early repayment

Watch out for certain lenders who penalise borrowers for paying off their loans early. Some lenders impose a feature which involves charging a high early settlement cost. To avoid this happening to you, make sure you read and understand the terms and conditions of your loan features contract.

6.  Payment protection insurance 

Think carefully and read the small print before signing up for expensive payment protection insurance policies.  As one of numerous loan features, PPI is meant to protect you if you are unable make your monthly repayments because of accident, sickness, or unemployment. However, in certain cases, when borrowers try to make claims, they often find they do not qualify because they have not been ill or unemployed for a long enough period, or they had a pre-existing medical condition. Some PPIs can significantly increase your total repayment bill, so you will need to consider carefully when thinking about which loan features you'd like to have, and which loan features you can do without.

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